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Investing: the Money Blind Spot for Millennials

3 things parents of Gen Y kids can do to help


Next Avenue Blogger
Next Avenue Blogger

The Millennial generation — the kids of boomers and Generation X — seems to really get the importance of saving. But based on four new surveys I’ve seen, Millennials also seem to have a blind spot when it comes to investing.

If you’re the parent of a Generation Y son or daughter, I strongly encourage you to provide your child with a basic tutorial about the benefits of being a long-term investor. Or if you don’t feel competent to do it, I’ll offer a few suggestions at the end of this post.

4 New Surveys of Millennials and Money

The four new surveys are Fidelity’s second biennial Millennial Money Study (just out today); The Wisdom of Experience: Lessons Learned From Millennial, Generation X and Baby Boomer Investors from American Funds; the 2016 Advice Matters Survey from TIAA and the 2016 Wells Fargo Retirement Study.

Millennials are “taking the right steps to build a solid future and that’s a really good trend,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. His firm’s survey of 305 Millennials between age 25 and 35 found that 85 percent have some savings, 60 percent are saving for retirement (up from 51 percent in 2014) and 59 percent have emergency funds that would cover 6½ months of living expenses, on average.

Only 44 percent of Millennials surveyed by American Funds call themselves long-term investors and understand that market fluctuations are natural.

Stumbling as Investors

But Millennials are stumbling on the steps to become smart investors.

In Fidelity’s survey, only 62 percent of Millennials said they have investment accounts. Worse, just 9 percent of Millennials said they see themselves as investors. “That’s a really low number,” said Sweeney. But it didn’t surprise him.

“There’s a mindset around being an investor that young people have to embrace,” said Sweeney.

That mindset includes understanding that volatility is just a natural part of the stock market and that stocks historically have outperformed bonds and cash, over the long term.

But only 44 percent of Millennials surveyed by American Funds call themselves long-term investors and understand that market fluctuations are natural. “That’s concerning to us,” said Heather Lord, strategy and innovation director at American Funds.

By contrast, 60 percent of boomers the firm surveyed see themselves as long-term investors. (American Funds surveyed 1,203 adults overall — boomers, Gen X’ers and Millennials.)

Picking Hot Stocks

What’s more, when American Funds asked what makes them feel smarter as an investor, only 43 percent of Millennials said “sticking with my investment strategy” (compared to 65 percent of boomers). And 12 percent of Millennials told American Funds that they think picking the next hot stock or market sector makes them “feel smarter as an investor.” Only 2 percent of boomers felt that way.

Similarly, Wells Fargo’s survey said that 59 percent of thirtysomething workers “focus more on avoiding loss than maximizing the growth of their investments for retirement.”

Many Millennials would love to be educated about investing, according to the surveys. But they’re either hesitant about talking about it with their parents or don’t have financial advisers.

The Disconnect With Parents

In Fidelity’s survey, although 65 percent of Millennials said their parents are “positive financial role models,” 34 percent said they were hesitant to discuss savings and investments with them. In 2014, only 24 percent of Millennials had such hesitancy.

Why the disconnect? “The way Millennials learn today is from their peers,” said Sweeney. “They want to find ‘people like me that make what I make and live in the city I live in.’”

The Millennials surveys show that many in this generation aren’t turning to financial advisers either.

In TIAA’s survey, 82 percent of Gen Y respondents said they were interested in receiving professional financial advice, but only 45 percent had. Yet when asked “At what age do you think you should first meet with a professional adviser?” 80 percent of Gen Y respondents said: before age 35.

“That’s a big gap” between the percentage of Millennials who’ve received financial advice and those who’d like to, said Daniel Keady, senior director for advice and planning strategy at TIAA.

Millennials and Financial Advisers

One of the biggest barriers preventing them (and older generations) from seeing financial advisers is that “many feel that if you have less than $50,000 in assets and modest income, they won’t qualify for advice,” said Keady.

That feeling, in many cases, is correct.

“Many business models for financial advisers don’t accommodate smaller balance clients,” Keady said.

There are a few financial planning firms, however, that either cater to middle-income clients or to Millennials in particular.

For instance, Garrett Planning Network charges hourly fees rather than a percentage of assets or through commissions, the way many planners do. And the XY Planning Network, comprised of fee-only advisers, specializes in Gen X and Gen Y, as its name suggests. It was co-founded by noted financial planner and blogger Michael Kitces.

Advice for Parents of Millennials

Three pieces of advice for parents of Millennials to help them become better as investors:

  • If you have a financial adviser, see if he or she will meet with your Millennial child, too. Maybe you’ve seen the Edward D. Jones financial services firm’s commercial along these lines. “In some cases, advisers will advise children of their clients,” said Keady.
  • If you don’t have an adviser, direct your Millennial son or daughter to online tools and websites that explain the basics of investing. “Online tools can help them get their arms wrapped around their savings goals and objectives,” said Lord. Next Avenue ran an article with some excellent resources for novice investors, such as the National Endowment for Financial Education’s site, Smartaboutmoney.org, and Morningstar.com, which has a few primers on mutual funds and stocks.
  • And whether you have an adviser or not, talk with your kids about what you’ve done right and wrong as an investor. “Tell them what you could have done differently as a 25-year-old,” said Sweeney. This way, they’ll see that everyone makes mistakes and they’ll avoid repeating yours.

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